Netflix Profit Could Plunge Amid Password-Sharing Crackdown

Close up Netflix website in laptop screen. Netflix being popular internationally.
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Key Takeaways

  • Analysts expect Q1 2023 EPS of $2.88 vs. $3.53 for the prior-year quarter.
  • Revenue likely increased 4% to $8.2 billion.
  • Netflix is forecast to lose close to 2 million subscribers to its ad-free platform globally
  • It could gain 3.2 million subscribers to its new lower-priced, ad-supported model.

Netflix Inc. (NFLX), the largest streaming platform by subscribers, will likely say first-quarter net income dropped by almost a fifth from a year ago amid a crackdown on password sharing.

The streaming giant's net income probably fell about 19% to $1.3 billion, or $2.88 per share, from $3.53 a share, according to estimates from Visible Alpha. Revenue probably rose 4% to a record $8.2 billion. The company reports financial results after the close on April 18.

The profit slump underscores challenges Netflix faces when multiple households share the same login information without paying for additional subscriptions. The company said in February that 100 million households shared accounts, representing about 43% of its global paid memberships that month. Netflix has issued guidelines prohibiting certain types of sharing in select markets around the world and is offering to add users to an existing plan for an added fee.

Netflix shares are down 1% in the last year, compared with a 14% drop for the benchmark S&P 500 Communication Services Sector Index.

One-Year Total Return for S&P 500 Communication Services Select Sector Index and Netflix
Source: TradingView.
Netflix Key Stats
  Estimate for Q1 FY 2023 Actual for Q1 FY 2022 Actual for Q1 FY 2021
Earnings Per Share ($) 2.88 3.53 3.75
Revenue ($B) 8.2 7.9 7.2

Ad-Supported Vs. Ad-Free Subscriptions

The quarter marks the first full period since Netflix launched its reduced-price, ad-supported subscription plan in November, a model available in the U.S., U.K., Canada, Japan, Germany, and several other markets throughout the world. That probably helped it add 3.2 million ad-supported global subscribers in the quarter, offsetting the 1.9 million global subscribers it lost for its higher-priced ad-free.

Growth in Low-Penetration Markets

Netflix's penetration of the U.S. and Canadian market has hovered in the low 60% range for more than four years. To boost revenue, it may need to achieve growth in other large markets that have historically low penetration rates. In Latin America, it has a rate of mid-40%, and it's been mired at about 30% for more than a year in Western Europe, and it's even lower in Japan, at no higher than 17%.

Article Sources
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  1. MarketWatch. "Netflix password crackdown, new ad service augur improved earnings over the next few quarters."

  2. FlixPatrol. "Top Streaming Services by Subscribers."

  3. Visible Alpha. "Financial Data."

  4. Netflix Inc. "Netflix First Quarter 2023 Earnings Interview."

  5. CNBC. "Netflix’s expected password-sharing crackdown puts college students on edge."

  6. Netflix Inc. "An Update on Sharing."

  7. TechCrunch. "Netflix's ad-supported plan is finally here."

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